FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
Commission File Number 1-9204
THE PACIFIC LUMBER COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3318327
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
P. O. BOX 37
125 MAIN STREET
SCOTIA, CALIFORNIA 95565
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (707) 764-2222
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at November 1, 1994: 100
Registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.<PAGE>
<PAGE>
THE PACIFIC LUMBER COMPANY
INDEX
<TABLE>
<CAPTION>
Page
PART I. - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations for the three and nine
months ended September 30, 1994 and 1993 . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . 5
Condensed Notes to Consolidated Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . 9
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------------ ------------------
(Unaudited)
(In thousands of dollars)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . $ 10,340 $ 38,760
Marketable securities . . . . . . . . . 289 5,635
Receivables:
Trade . . . . . . . . . . . . . . 10,761 14,750
Other . . . . . . . . . . . . . . 3,519 3,801
Inventories . . . . . . . . . . . . . . 78,818 66,241
Prepaid expenses and other
current assets . . . . . . . . . 3,205 2,939
------------------ ------------------
Total current
assets . . . . . . . 106,932 132,126
Timber and timberlands, net of depletion of
$184,897 and $171,007 at September 30,
1994 and December 31, 1993,
respectively . . . . . . . . . . . . . 353,811 365,511
Property, plant and equipment, net of
accumulated depreciation of
$54,686 and $48,703 at September
30, 1994 and December 31, 1993,
respectively . . . . . . . . . . . . . 98,391 96,541
Deferred financing costs, net . . . . . . . . 25,055 26,500
Deferred income taxes . . . . . . . . . . . . 52,500 52,066
Restricted cash . . . . . . . . . . . . . . . 32,710 33,562
Other assets . . . . . . . . . . . . . . . . 6,323 6,630
------------------ -----------------
$ 675,722 $ 712,936
================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . $ 4,361 $ 2,360 <PAGE>
Accrued compensation and
Accrued compensation and related
benefits . . . . . . . . . . . . . 12,000 7,782
Accrued interest . . . . . . . . . . . 7,720 21,627
Deferred income taxes . . . . . . . . . 14,132 14,132
Other accrued liabilities . . . . . . . 3,615 1,377
Long-term debt, current
maturities . . . . . . . . . . . 16,670 13,191
------------------ ------------------
Total current
liabilities . . . . . 58,498 60,469
Long-term debt, less current
maturities . . . . . . . . . . . . . . 586,051 598,811
Other noncurrent liabilities . . . . . . . . 20,992 27,925
------------------ ------------------
Total liabilities . . . . . 665,541 687,205
------------------ ------------------
Contingencies
Stockholder's equity:
Common stock, $.01 par
value, 100 shares
authorized and issued . . . . . . - -
Additional capital . . . . . . . . . . 157,520 157,520
Accumulated deficit . . . . . . . . . . (147,339) (131,789)
------------------ ------------------
Total stockholder's
equity . . . . . . . 10,181 25,731
------------------ ------------------
$ 675,722 $ 712,936
================== ==================
/TABLE
<PAGE>
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------------
1994 1993 1994 1993
------------- ------------- --------------- ---------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Net sales:
Lumber and logs . . . . . . $ 48,632 $ 51,077 $ 144,950 $ 140,357
Other . . . . . . . . . . . 6,369 4,742 15,987 12,652
------------- ------------- --------------- ---------------
55,001 55,819 160,937 153,009
------------- ------------- --------------- ---------------
Operating expenses:
Cost of goods sold
(exclusive of
depletion and
depreciation) . . . . 28,548 31,662 83,995 81,358
Selling, general and
administrative . . . 3,370 6,490 11,040 14,484
Depletion and
depreciation . . . . 5,991 6,240 17,135 18,871
------------- ------------- --------------- ---------------
37,909 44,392 112,170 114,713
------------- ------------- --------------- ---------------
Operating income . . . . . . . . 17,092 11,427 48,767 38,296
Other income (expense):
Investment, interest
and other income . . 1,241 1,020 10,584 2,439
Interest expense . . . . . (14,079) (14,439) (41,932) (44,849)
------------- ------------- --------------- ---------------
Income (loss) before income
taxes, extraordinary
items and cumulative
effect of changes in
accounting principles . . . 4,254 (1,992) 17,419 (4,114)<PAGE>
Credit (provision) in lieu
Credit (provision) in lieu
of income taxes . . . . . . 5,301 1,416 (103) 2,201
------------- ------------- --------------- ---------------
Income (loss) before
extraordinary items
and cumulative effect
of changes in accounting
principles . . . . . . . . 9,555 (576) 17,316 (1,913)
Extraordinary items:
Loss on litigation
settlement, net
of related credit
in lieu of income
taxes of $6,312 . . . - - (14,866) -
Loss on early
extinguishment of
debt, net of
related credit in
lieu of income
taxes of $5,566 . . . - - - (10,802)
Cumulative effect of
changes in accounting
principles:
Postretirement benefits
other
than pensions,
net of related
credit in lieu of
income taxes of
$1,566 . . . . . . . - - - (2,348)
Accounting for income
taxes . . . . . . . . - - - 4,973
------------- ------------- --------------- ---------------
Net income (loss) . . . . . . . . $ 9,555 $ (576) $ 2,450 $ (10,090)
============= ============= =============== ===============
/TABLE
<PAGE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------
1994 1993
---------------- ------------------
(In thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . $ 2,450 $ (10,090)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depletion and depreciation . . . . . . . . . 17,135 18,871
Amortization of deferred financing
costs . . . . . . . . . . . . . . . . . 1,658 1,835
Net gains on marketable securities . . . . . (929) (589)
Extraordinary loss on early
extinguishment of debt, net . . . . . . - 10,802
Incurrence of financing costs . . . . . . . . - (27,888)
Cumulative effect of changes in
accounting principles, net . . . . . . - (2,625)
Decrease in receivables . . . . . . . . . . . 4,271 13,742
Increase in accounts payable . . . . . . . . 2,001 3,797
Decrease (increase) in accrued and
deferred income taxes . . . . . . . . . 839 (2,201)
Decrease in accrued interest . . . . . . . . (13,907) (23,058)
Increase in inventories, net of
depletion . . . . . . . . . . . . . . . (9,461) (6,691)
Increase (decrease) in other
liabilities . . . . . . . . . . . . . . (1,750) 950
Other . . . . . . . . . . . . . . . . . . . . 89 (746)
---------------- ------------------
Net cash provided by (used for)
operating activities . . . . . . 2,396 (23,891)
---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of marketable
securities . . . . . . . . . . . . . . . . . 6,275 (4,631)
Capital expenditures . . . . . . . . . . . . . . . (9,752) (8,347)
---------------- ------------------
Net cash used for investing
activities . . . . . . . . . . . (3,477) (12,978)
---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
agreement . . . . . . . . . . . . . . . . . . 3,000 -
Restricted cash released . . . . . . . . . . . . . 852 1,025
Dividends paid . . . . . . . . . . . . . . . . . . (18,000) (25,000)
Redemptions, repurchase of and principal payments on
long-term debt . . . . . . . . . . . . . . . (13,191) (557,834)
Proceeds from issuance of long-term debt . . . . . - 620,000
Restricted cash deposits . . . . . . . . . . . . . - (35,000)
---------------- ------------------
Net cash provided by (used for)
financing activities . . . . . . (27,339) 3,191
---------------- ------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . (28,420) (33,678)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . 38,760 43,537
---------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . $ 10,340 $ 9,859
================ ==================
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Timber and timberlands acquired subject to
loan from seller . . . . . . . . . . . . . . $ 910 $ -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest . . . . $ 54,181 $ 66,072
Income taxes paid . . . . . . . . . . . . . . . . . 1,120 14
</TABLE>
<PAGE> CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would appear
in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by The Pacific
Lumber Company with the Securities and Exchange Commission for the fiscal
year ended December 31, 1993 (the "Form 10-K"). All references to the
"Company" include The Pacific Lumber Company and its subsidiary companies
unless otherwise indicated or the context indicates otherwise. Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of operations for the interim
periods presented are not necessarily indicative of the results to be
expected for the entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at September 30, 1994,
the consolidated results of operations for the three and nine months ended
September 30, 1994 and 1993 and consolidated cash flows for the nine months
ended September 30, 1994 and 1993. Certain reclassifications of prior
period information have been made to conform to the current presentation.
The Company is a wholly owned indirect subsidiary of MAXXAM Group Inc.
("MGI") which is a wholly owned subsidiary of MAXXAM Inc. ("MAXXAM").
2. CASH AND CASH EQUIVALENTS
At September 30, 1994 and December 31, 1993, cash and cash
equivalents includes $8,872 and $20,280, respectively, which is reserved
for debt service payments on the 7.95% Timber Collateralized Notes due
2015.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------------ ---------------
<S> <C> <C>
Lumber . . . . . . . . . . . . . . . . $ 56,687 $ 50,906
Logs . . . . . . . . . . . . . . . . . 22,131 15,335
------------------ ---------------
$ 78,818 $ 66,241
================== ===============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
--------------- ---------------
<S> <C> <C>
7.95% Timber Collateralized Notes due
July 20, 2015 . . . . . . . . . . . . . $ 363,811 $ 376,953
10-1/2% Senior Notes due March 1, 2003 . . . . 235,000 235,000
Other . . . . . . . . . . . . . . . . . . . . . 3,910 49
--------------- ---------------
602,721 612,002
Less: current maturities . . . . . . . . . . . (16,670) (13,191)
--------------- ---------------
$ 586,051 $ 598,811
=============== ===============
</TABLE>
<PAGE>
5. INVESTMENT, INTEREST AND OTHER INCOME
In February 1994, the Company received a franchise tax refund of
$7,243, the substantial portion of which represents interest, from the
State of California relating to tax years 1972 through 1985. This amount
is included in investment, interest and other income for the nine months
ended September 30, 1994.
6. CREDIT (PROVISION) IN LIEU OF INCOME TAXES
The credit in lieu of income taxes for the third quarter of 1994
includes a credit relating to reserves the Company no longer believes are
necessary. The credit in lieu of income taxes for the third quarter of
1993 includes a credit resulting from an increase in the federal statutory
income tax rate from 34% to 35%.
7. LOSS ON LITIGATION SETTLEMENT AND CONTINGENCIES
On May 17, 1994, MAXXAM and the Company announced that an
agreement in principle had been reached to settle class and related
individual claims brought by former stockholders of the Company against
MAXXAM, MGI, the Company, former directors of the Company and others
concerning MGI's acquisition of the Company. Of the pending approximately
$52,000 settlement, approximately $33,000 was paid by insurance carriers of
MAXXAM and the Company, approximately $14,800 was paid by the Company and
the balance was paid by other defendants and through the assignment of
certain claims. The settlement is subject to certain contingencies,
including a fairness hearing which is scheduled to be held on November 17,
1994. The above described cash payments are being held in the registry of
the court pending satisfaction of these contingencies. In the second
quarter of 1994, the Company recorded an extraordinary loss of $14,866
related to the settlement and associated costs, net of benefits for federal
and state income taxes of $6,312.
The Company's operations are subject to a variety of California
and, in some cases, federal laws and regulations dealing with timber
harvesting, endangered species, water quality and air and water pollution.
The Company does not expect that compliance with such existing laws and
regulations will have a material adverse effect on the Company's future
operating results. There can be no assurance, however, that future
legislation, governmental regulations or judicial or administrative
decisions would not adversely affect the Company or its ability to sell
lumber, logs or timber.
Various groups and individuals have filed objections with the
California Department of Forestry ("CDF") regarding the CDF's actions and
rulings with respect to certain of the Company's timber harvesting plans
("THPs"), and the Company expects that such groups and individuals will
continue to file objections to the Company's THPs. In addition, lawsuits
are pending which seek to prevent the Company from implementing certain of
its approved THPs. These challenges have severely restricted the Company's
ability to harvest virgin old growth redwood timber on its property during
the past few years, as well as substantial amounts of virgin Douglas-fir
timber which are located in virgin old growth redwood stands. No assurance
can be given as to the extent of such litigation in the future. The
Company believes that environmentally focused challenges to its THPs are
likely to occur in the future. Although such challenges have delayed or
prevented the Company from conducting a portion of its operations, to date
such challenges have not had a material adverse effect on the Company's
consolidated financial position or results of operations. It is, however,
impossible to predict the future nature or degree of such challenges or
their ultimate impact on the operating results or consolidated financial
position of the Company.
<PAGE>
The Company is also involved in various claims, lawsuits and
proceedings relating to a wide variety of other matters. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes the resolution of such uncertainties and the incurrence
of such costs should not have a material adverse effect on the Company's
consolidated financial position or results of operations.<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company's business is highly seasonal in that the Company has
historically experienced lower first and fourth quarter sales due largely
to the general decline in construction related activity during the winter
months. Accordingly, the Company's results for any one quarter are not
necessarily indicative of results to be expected for the full year. The
following table presents selected operational and financial information for
the three and nine months ended September 30, 1994 and 1993. The
information presented in the table is in millions of dollars except
shipments and prices.<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------------
1994 1993 1994 1993
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Shipments:
Lumber(1):
Redwood upper
grades . . . . . 12.5 17.0 38.2 49.8
Redwood common
grades . . . . . 38.3 26.9 101.5 82.9
Douglas-fir upper
grades . . . . . 1.7 2.3 6.1 8.6
Douglas-fir common
grades . . . . . 16.0 8.1 47.9 35.6
------------- ------------ -------------- -------------
Total lumber . . 68.5 54.3 193.7 176.9
============= ============ ============== =============
Logs(2) . . . . . . . . . . . 4.9 17.2 21.9 24.2
============= ============ ============== =============
Wood chips(3) . . . . . . . . 55.3 37.4 142.7 106.7
============= ============ ============== =============
Average sales price:
Lumber(4):
Redwood upper
grades . . . . . $ 1,434 $ 1,328 $ 1,436 $ 1,272
Redwood common
grades . . . . . 499 492 481 501
Douglas-fir upper
grades . . . . . 1,431 1,248 1,402 1,189
Douglas-fir common
grades . . . . . 429 457 439 439
Logs(4) . . . . . . . . . . . 462 557 606 528
Wood chips(5) . . . . . . . . 87 87 86 83
Net sales:
Lumber, net of discount . . . $ 46.4 $ 41.5 $ 131.7 $ 127.6
Logs . . . . . . . . . . . . 2.3 9.6 13.3 12.8
Wood chips . . . . . . . . . 4.8 3.2 12.3 8.8
Cogeneration power . . . . . 1.2 1.1 2.7 2.9
Other . . . . . . . . . . . . .3 .4 .9 .9
------------- ------------ -------------- -------------
Total net sales . . . . . . . $ 55.0 $ 55.8 $ 160.9 $ 153.0
============= ============ ============== =============
Operating income . . . . . . . . . $ 17.1 $ 11.4 $ 48.8 $ 38.3
============= ============ ============== =============
Income (loss) before income
taxes, extraordinary
items and cumulative
effect of changes in
accounting principles . . . . $ 4.3 $ (2.0) $ 17.4 $ (4.1)
============= ============ ============== =============
Net income (loss) . . . . . . . . . $ 9.6 $ (.6) $ 2.5 $ (10.1)
============= ============ ============== =============
Capital expenditures . . . . . . . $ 3.5 $ 2.2 $ 9.8 $ 8.3
============= ============ ============== =============
<FN>
- --------------------
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of board feet, net Scribner
scale.
(3) Wood chip shipments are expressed in thousands of bone dry units of
2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
/TABLE
<PAGE>
<PAGE>
Shipments
Lumber shipments for the third quarter of 1994 were 68.5 million
board feet, an increase of 26% from 54.3 million board feet for the third
quarter of 1993. This increase was principally due to a 42% increase in
redwood common lumber shipments and a 98% increase in shipments of common
grade Douglas-fir lumber, partially offset by a 26% decrease in shipments
of upper grade redwood lumber. Log shipments for the third quarter of 1994
were 4.9 million feet (net Scribner scale), a decrease from 17.2 million
feet for the third quarter of 1993.
Lumber shipments for the nine months ended September 30, 1994
were 193.7 million board feet, an increase of 9% from 176.9 million board
feet for the nine months ended September 30, 1993. This increase was
principally due to a 22% increase in redwood common lumber shipments and a
35% increase in shipments of common grade Douglas-fir lumber, partially
offset by a 23% decrease in shipments of upper grade redwood lumber. Log
shipments for the nine months ended September 30, 1994 were 21.9 million
feet (net Scribner scale), a decrease from 24.2 million feet for the nine
months ended September 30, 1993.
Old growth trees constitute the Company's principal source of
upper grade redwood lumber. Due to the severe restrictions on the
Company's ability to harvest virgin old growth timber on its property (see
"Trends" under Item 7 of the Form 10-K), the Company's supply of upper
grade lumber has decreased in some premium product categories. The Company
has been able to lessen the impact of these decreases by augmenting its
production facilities to increase its recovery of upper grade lumber from
smaller diameter logs and increasing the production of manufactured upper
grade lumber products through its end and edge glue facility (which was
recently expanded). However, unless the Company is able to sustain the
harvest level of old growth trees it has experienced in recent years, the
Company expects that its supply of premium upper grade lumber products will
decrease from current levels and that its manufactured lumber products will
constitute a higher percentage of its shipments of upper grade lumber
products.
Net sales
Revenues from net sales of lumber and logs for the third quarter
of 1994 decreased by approximately 5% from the third quarter of 1993. This
decrease was principally due to decreased log shipments and decreased
shipments of upper grade redwood lumber, partially offset by increased
shipments of redwood common lumber, increased shipments of common grade
Douglas-fir lumber and an 8% increase in the average realized price of
upper grade redwood lumber. The increase in other sales for the third
quarter of 1994 as compared to the third quarter of 1993 was attributable
to increased sales of wood chips.
Revenues from net sales of lumber and logs for the nine months
ended September 30, 1994 increased by approximately 3% from the nine months
ended September 30, 1993. This increase was principally due to increased
shipments of redwood common lumber, a 13% increase in the average realized
price of upper grade redwood lumber, increased shipments of common grade
Douglas-fir lumber, a 15% increase in the average realized price of log
sales and an 18% increase in the average realized price of upper grade
Douglas-fir lumber, partially offset by decreased shipments of upper grade
redwood lumber, decreased shipments of upper grade Douglas-fir lumber, a 4%
decrease in the average realized price of redwood common lumber and
decreased log shipments. The increase in other sales for the nine months
ended September 30, 1994 as compared to the nine months ended September 30,
1993 was attributable to increased sales of wood chips.<PAGE>
Operating income
Operating income for the third quarter of 1994 increased by
approximately 50% as compared to the third quarter of 1993. Operating
income for the nine months ended September 30, 1994 increased by
<PAGE>
approximately 27% as compared to the nine months ended September 30, 1993.
These increases were principally due to higher sales of lumber and wood
chips, lower purchases of lumber and logs from third parties, improved
sawmill productivity and reduced overhead costs in 1994 compared to 1993.
For the nine months ended September 30, 1993, cost of goods sold was
reduced by $1.2 million for an additional business interruption insurance
claim as a result of the April 1992 earthquake.
The Company's cost of producing lumber products has continued to
increase as a result of compliance with evolving environmental regulations,
litigation associated with its timber harvesting plans and greater costs
attributable to processing larger numbers of smaller diameter logs and
producing manufactured products.
Income (loss) before income taxes, extraordinary items and
cumulative effect of changes in accounting principles
Income before income taxes, extraordinary items and cumulative
effect of changes in accounting principles increased for the third quarter
of 1994 and the nine months ended September 30, 1994 as compared to the
same periods in 1993. These increases resulted from the increases in
operating income, higher investment, interest and other income and
decreased interest expense. Investment, interest and other income for the
nine months ended September 30, 1994 includes the receipt of a franchise
tax refund of $7.2 million (as described in Note 5 to the Condensed Notes
to Consolidated Financial Statements). Interest expense decreased due to
lower interest rates resulting from the refinancing of the Company's
long-term debt in March of 1993.
Extraordinary item - loss on litigation settlement
The litigation settlement in the second quarter of 1994 (as
described in Note 7 to the Condensed Notes to Consolidated Financial
Statements) resulted in an extraordinary loss of $14.9 million, net of
related income taxes of $6.3 million. The extraordinary loss consists of
the Company's $14.8 million cash payment to the settlement fund, a $2.0
million accrual for additional contingent claims and $4.4 million of
related legal fees. See also "Merger Litigation" under Part II, Item 1 of
this Report.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
As of September 30, 1994, the Company had consolidated working
capital of $48.4 million and long-term debt of $553.3 million (net of
current maturities and restricted cash deposited in the Liquidity Account)
as compared to $71.7 million and $565.2 million, respectively, at December
31, 1993. The decrease in long-term debt was primarily due to principal
payments on the Timber Notes. The decline in working capital was primarily
due to the cash payment for the litigation settlement, the principal
payments on the Timber Notes, dividends and capital expenditures, partially
offset by improved cash flows from operations. The Company anticipates
that cash flows from operations, together with existing cash, marketable
securities and available sources of financing, will be sufficient to fund
the Company's working capital and capital expenditures requirements for the
foreseeable future; however, due to its highly leveraged condition, the
Company is more sensitive than less leveraged companies to factors
affecting its operations, including governmental regulation affecting its
timber harvesting practices, increased competition from other lumber
producers or alternative building products and general economic conditions.
As of September 30, 1994, $16.7 million of borrowings was
available under the Company's Revolving Credit Agreement, of which $4.7
million was available for letters of credit. Outstanding borrowings were
$3.0 million as of September 30, 1994, and letters of credit outstanding
amounted to $10.3 million. In May
<PAGE>
1994, the Revolving Credit Agreement was amended to extend its maturity
date to May 31, 1997 and modify the dividend restriction existing at
December 31, 1993.
The indentures governing the Senior Notes and the Timber Notes
and the Company's Revolving Credit Agreement contain various covenants
which, among other things, limit the payment of dividends and restrict
transactions between the Company and its affiliates. As of September 30,
1994, under the most restrictive of these covenants, approximately $15.7
million of dividends could be paid by the Company. On February 24, 1994,
the Company paid dividends of $5.7 million which represented the entire
amount permitted at December 31, 1993. The Company paid an additional
$12.3 million of dividends in June 1994 as a result of the amendment to the
Revolving Credit Agreement, as discussed above, and the Company's operating
results for the four months ended April 30, 1994.
PAGE
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K and Part II, Item 1
of the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1994 and June 30, 1994 (the "Forms 10-Q") for information
concerning material legal proceedings with respect to the Company. The
following material developments have occurred with respect to such legal
proceedings. Any capitalized or italicized terms used but not defined in
this Item have the same meaning given to them in the Form 10-K and the
Forms 10-Q.
MERGER LITIGATION
With respect to the In re Ivan F. Boesky multidistrict securities
litigation matter, on September 28, 1994, the judge signed the preliminary
approval of the settlement agreement, which, among other things,
established October 28, 1994 as the postmark deadline for requests for
exclusion from the settlement (none has been received), established
November 4, 1994 as the deadline for filing any objections to the
settlement (none has been filed), established November 17, 1994 as the date
for the fairness hearing and established December 23, 1994 as the postmark
deadline for proofs of claim. Prior to preliminary approval of the
settlement agreement, certain changes were made from the agreement in
principle described in the Form 10-Q for the quarterly period ended June
30, 1994 (the "Second Quarter Form 10-Q"). The settlement agreement, as
then executed, does not purport to cover certain claims brought in the
Thompson State action by non-shareholders of the Company or shareholders
acting in capacities other than as shareholders involving environmental or
other Company non-shareholder corporate issues.
With respect to the DOL civil action, at the September 2, 1994
status conference, at defendants' request, the judge instructed the parties
to attend a settlement conference before a federal magistrate, which has
been scheduled for November 14, 1994, and scheduled the next status
conference for December 16, 1994.
With respect to the Miller action, the defendants and plaintiff
in the DOL civil action have invited the Miller plaintiffs to attend the
settlement conference referenced above. Additionally, on October 3, 1994,
the U.S. House of Representatives approved a bill amending ERISA, which had
been previously passed by the U.S. Senate on October 28, 1993, intended, in
part, to overturn the U.S. District Court's dismissal of the Miller action
and to make available certain remedies not previously provided under ERISA.
On October 22, 1994, the President signed this legislation (the Pension
Annuitants' Protection Act of 1994). As a result of the passage of this
legislation, the Miller plaintiffs have asked the U.S. Ninth Circuit Court
of Appeal to vacate the U.S. District Court judgment dismissing their case
and to remand the case to the U.S. District Court; defendants have opposed
this request. It is uncertain what effect, if any, this legislation will
have on the pending appeal or the final disposition of this case.
ENVIRONMENTAL LITIGATION
With respect to the Marbled Murrelet, et al. v. Bruce Babbitt, et
al. (No. C93-1400) action, a trial was held in U.S. District Court
commencing August 15, 1994 and concluding September 8, 1994. The Company
is awaiting a decision.
With respect to the EPIC v. California Department of Forestry, et
al. (No. 94CP0317) action, on October 4, 1994, the Court denied the TRO,
dismissed the case on its merits and awarded the Company defendants their
costs.<PAGE>
<PAGE>
With respect to the EPIC v. California Department of Forestry, et
al. (No. 94DR0198) action, on August 10, 1994, plaintiff requested that the
Court dismiss this case with prejudice and the Court subsequently did so.
ITEM 5. OTHER INFORMATION
In Part I, Item 1, "Business--Regulatory and Environmental
Factors" of the Form 10-K and Part II, Item 5, "Other Information" of the
Second Quarter Form 10-Q, a bill is described which relates to acquisition
of certain of the Company's timberlands. The bill, substantially amended
to protect the Company's private property rights, was passed by the U.S.
House of Representatives in September 1994. However, the U.S. Senate
recessed without acting upon a similar bill and agreed to limit its
business, upon reconvening after the November election, to a single
unrelated subject. It therefore appears unlikely that this legislation
will move forward in this session of the U.S. Congress.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
*27 Financial Data Schedule
--------------------
* Included with this filing.
B. REPORTS ON FORM 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE PACIFIC LUMBER COMPANY
Date: November 14, 1994 By: JOHN T. LA DUC
----------------------------------
John T. La Duc
Vice President - Chief Financial
Officer
(Principal Financial Officer)
Date: November 14, 1994 By: GARY L. CLARK
----------------------------------
Gary L. Clark
Vice President - Finance and
Administration
(Principal Accounting Officer)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Company's consolidated balance sheet and consolidated statement of
operations and is qualified in its entirety by reference to such
consolidated financial statements together with the related footnotes
thereto.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 10,340
<SECURITIES> 289
<RECEIVABLES> 10,761
<ALLOWANCES> 0
<INVENTORY> 78,818
<CURRENT-ASSETS> 106,932
<PP&E> 153,077
<DEPRECIATION> 54,686
<TOTAL-ASSETS> 675,722
<CURRENT-LIABILITIES> 58,498
<BONDS> 602,721
<COMMON> 0
0
0
<OTHER-SE> 10,181
<TOTAL-LIABILITY-AND-EQUITY> 675,722
<SALES> 160,937
<TOTAL-REVENUES> 160,937
<CGS> 83,995
<TOTAL-COSTS> 83,995
<OTHER-EXPENSES> 28,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,932
<INCOME-PRETAX> 17,419
<INCOME-TAX> 103
<INCOME-CONTINUING> 17,316
<DISCONTINUED> 0
<EXTRAORDINARY> (14,866)
<CHANGES> 0
<NET-INCOME> 2,450
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
